Chapter 10: Balance Sheet Guide
The Balance Sheet shows what a company owns, what it owes, and what belongs to shareholders at a specific point in time.
This guide builds on the Profit & Loss Guide and helps you understand a company’s financial strength and stability.
Progress: Chapter 10 of 16
📌 What You Will Learn
- What a balance sheet is
- The difference between assets, liabilities and equity
- Current vs non-current classifications
- How to assess financial health
📊 What is a Balance Sheet?
The balance sheet provides a snapshot of a company’s financial position at a given time.
It follows a simple equation:
Assets = Liabilities + Equity
This means everything a company owns is financed either by debt or by shareholders.
You can view this data on:
Company Pages
🏦 Assets
Assets are everything the company owns.
📅 Current Assets
Assets expected to be converted into cash within one year.
- Cash and equivalents
- Receivables (money owed to the company)
- Inventory
🏢 Non-Current Assets
Long-term assets used in the business.
- Property, plant and equipment
- Intangible assets
- Investments
💡 A strong company typically has a healthy balance between current and long-term assets.
📉 Liabilities
Liabilities are what the company owes.
📅 Current Liabilities
Obligations due within one year.
- Short-term debt
- Accounts payable
🏢 Non-Current Liabilities
Long-term obligations.
- Long-term loans
- Bonds issued
These are especially important when analysing:
Bond issuers
📊 Equity
Equity represents the shareholders’ ownership in the company.
It includes:
- Share capital
- Retained earnings
Retained earnings are profits reinvested into the business.
📈 Key Balance Sheet Metrics
⚖️ Current Ratio
Current Ratio = Current Assets / Current Liabilities
Measures short-term financial strength.
- > 1 → generally healthy
- < 1 → potential liquidity risk
📉 Debt to Equity
Debt/Equity = Total Debt / Equity
Indicates financial leverage.
- High → more risk
- Low → more conservative
📊 Debt to Assets
Debt/Assets = Total Debt / Total Assets
Shows how much of assets are financed by debt.
💼 Working Capital
Working Capital = Current Assets − Current Liabilities
Indicates short-term financial flexibility.
- Positive → good liquidity
- Negative → potential issues
🧠 How to Analyse a Balance Sheet
Look for:
- Strong cash position
- Manageable debt levels
- Positive working capital
Be cautious of:
- Rapidly increasing debt
- Weak liquidity
- Large mismatches between assets and liabilities
🏦 Special Case: Financial Institutions
Banks and insurance companies have different balance sheet structures.
- Loans are considered assets
- Deposits are liabilities
Learn more:
Banks & Insurance Guide
⚠️ Common Mistakes
- Ignoring debt levels
- Not checking liquidity
- Comparing companies across industries
- Looking at a single year instead of trends
💡 Always combine balance sheet analysis with
Profit & Loss and
Cash Flow.
🔗 Related Guides
⬅️ Previous:
9. Profit & Loss
➡️ Next:
11. Cash Flow